Modern Economic Theory

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Modern Economic Theory

an increase in production fur which extra rnou ey is needed. But, owing to acute shortage of finance, the underdeveloped countries have (,often indulged in del licit
financing to an excessive degree. Sharp increase: in the money supply with the public as a result of excessive deficit financing adds greatly to the level of; 19- gcg atc demand for consumers’ goods. On the liberhan . the supply of consumers’ goods. especially of food products,  cannot be increased rapidly and sufficiently. The pressure of demand, therefore, leads tu an inflationary rise in prices. It may. however. he  pointed out  hat investment  expenditure made by the gov- UDCs taco tile problem fo silvertag P. of  fiance, ernment under the  development plans not only generates the additional demand for goods, it also increases the productive capacity,  a dunk the hand,de uul or income, on the other it increase . As a result of increase in productive capacity. more output of goods can be obtained which will counteract inflationary tendencies.

But, in the earlier stages of development. investment expenditure i largely made on h uge dams, steel plants and other heavy and basicind stries which have long-gestation periods. In other words. the long-term projects can help ill increasing the supply uf consumers’ goods only In t IC long run. ~ ‘n the short run. prices generally shoot lip under the

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Modern Economic Theory